Nice Systems Ltd (ADR) (NICE), International Business Machines Corp. (IBM): Why This IT Company Can Outperform

It’s been a volatile year for the tech sector, but one company’s consistency has helped it stand out. Customer interaction company Nice Systems Ltd (ADR) (NASDAQ:NICE) has managed to keep its guidance on an even keel throughout the year. Meanwhile, the company is gradually transforming itself from a hardware specialist into a big data play.

NICE Systems’ latest results

Here’s a brief summary of the company’s latest-second quarter (Q2) results:

Q2 revenue of $225 million, vs. internal guidance of $220 million to $230 million

Q2 non-GAAP diluted EPS of $0.61, vs. internal guidance of $0.58 to $0.64

Q3 revenue guidance of $225 million to $240 million

Q3 non-GAAP diluted EPS guidance of $0.56 to $0.66

Full-year guidance maintained, with revenues forecast at $940 million to $970 million, and EPS of $2.55 to $2.65

The Q2 numbers were bang in the middle of internal estimates, while full-year guidance held steady. In a year where so many other tech companies have warned or reduced guidance, this must be seen as a net positive. So why is Nice Systems Ltd (ADR) (NASDAQ:NICE) doing so well?

Reasons to be NICE

There are three key reasons why the company has been outperforming.

First, its solutions do not necessarily need a strongly growing economy. Essentially, Nice Systems Ltd (ADR) (NASDAQ:NICE) enables governments and enterprises to monitor and analyze interactions through call centers, websites, email, or even internal company interactions (for compliance, fraud or regulatory reasons).

Fortunately, these sorts of activities are equally relevant in a slow- or a fast-growing economy. In fact, in today’s cautious spending environment, corporations might be more inclined to maximize the potential within their existing customers, rather than chasing new ones.

Second, big data is only getting bigger. The explosion of data being created by social networking sites such as Facebook is creating a huge amount of awareness of the need for corporations to monitor and analyze customer behavior. This benefits NICE, because it may drive demand for its data-capturing hardware systems,  and also because Nice Systems Ltd (ADR) (NASDAQ:NICE) has the capability to sell data analytics solutions into its installed customer base. NICE calls these solutions “advanced applications,” and they made up a 50% of its new bookings in Q2.

Moreover, the company has been proactive in developing its offerings, thanks to a deal to incorporate International Business Machines Corp. (NYSE:IBM)‘s world-leading analytics solutions within its services. In exchange, International Business Machines Corp. (NYSE:IBM) gets to tap into NICE’s installed customer base (particularly its key financial customers).

You can see the gradual shift in Nice Systems Ltd (ADR) (NASDAQ:NICE)’s revenues by looking at product sales vs. services sales.

Source: Company accounts.

The third reason is that a lot of NICE’s solutions are not really economically aligned. For example, its financial crime & compliance solutions increased an impressive 7% in Q2, and contributed 15% of revenues. In addition, its security based revenues made up 20% of revenues in Q2.  In other words, 35% of Nice Systems Ltd (ADR) (NASDAQ:NICE)’s revenues are coming from sectors whose end demand is not really cyclical.